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tv   Real Money With Ali Velshi  Al Jazeera  October 15, 2013 5:30am-6:01am EDT

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the ocean is much less important i think than it used to be. >> reporter: a reflection of the literary world that is crossing the boundaries, al jazeera london. >> reporter: there is a home page of the website and the top story is the philippines earthquake. the light own why and how home and stock prices move plus with october 17th days away, a debt deal is taking shape in dc. what is it going to look like? and the s word that means financial pain for small business owners. i'm ali velshi. this is "real money." ♪ this is "real money," you are the most important part of
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the show so join our live conversation for the next half hour by using the hashtag agreal money on twitter. i'm getting questions like this one, if the u.s. hits the debt ceiling should 401k investors reallocate their investments what about roth and ira's? help. you are in luck, because the best three people to answer that question just got awarded nobel prizes in economics on monday. their work independently and overtime is about how the price of assets move over time. it has been so influential that it has changed the way people invest their money. and i'm going to explain it without a bunch of nobel prize
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jargon starting in the 1960s, trying to figure out which ways stocks will move is a fool's journey. knowing what a stock did last week does little to help figure out what it will do next week. that means individual stock picks rarely beat the performance of the overall market at least in the short-term. that gave birth to stock index funds, financial products many of us used to get exposure to the wider market. but schiller showed you can anticipate how prices move broodly over a longer period of time, say three to five years. investors can predict irrational behavior in the market like booms and busts. chiller is famous for predicting the tech bubble and the housing collapse. what hanson did was come up with the math that helped test the
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theories, and let me just say it's not the kind of math they teach you in high school. you may know schiller's name because he help create the consumer home price index. bob congratulations there is no one more well qualified to help answer that question i started with from my viewer. should 401k investors reallocate their portfolios to safer investments? what about roths and ira's? what do you think? >> i think the incite you attributed to fama is the first thing to mention. the fear in the debt ceiling fear has already been factored in. i think the risk might be going up because of the difficulties
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in congress, but the direction is a little hard to pin down. i'm founding like eugene fama here. >> but it was interesting because when you were today about the markets, you said maybe they will go down if something bad happens -- [ technical difficulties ] -- without any prizes or education in economics who will tell you on a daily basis exactly what is going to happen in the markets next week or a year from now. should by viewers really be discounting a lot of that? >> you have to know the market is very hard to forecast in the short run, and it gets easier to forecast over longer intervals. i think the u.s. market is somewhat high now, the stock market, so it's not as good as an investment as it was in some
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other years, but it's not terrible. but the basic incite is don't worry day-to-day, unless you have some special knowledge and you probably don't, don't -- you know, there's better things to worry about. >> you are married to a psychologist, you can written extensively on behavior economics. what role was human behavior played in this. you have written about it as a science, but in fact it so depends on how people feel. >> that's one thing that separates me from gene. we're all interested in psychology, but they have a view that it's not really that important. and this view still hasn't been resolved. in my view the -- the main reason for fluctuations in the aggregate stock market are psychological or sociological, i don't think they would leap forward to agree with that.
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>> last time you were on the show we talked about housing, and people know you as this guy you are associated with housing, you have written by housing, and yet you are also reluctant to sort of give a view of what housing will look like in america in the next year. that? >> i have been trying to figure it out, but i have a different approach than my two cowinners, i have been doing questionnaire surveys trying to deduce attitudes people had, and comparing it with attitudes they had during the boom years, say 2003 to 2005. i think some people are might back in that mindset but most aren't. people's expectations are not that strong for the long-run strength of the market. so i'm thinking it probably won't develop into something. but i'm using a method of
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research that is not fama hanson methods, and i don't know what they would say about it. you can learn something, but you can't be too confident on what these markets will do. >> let me ask you about this award. when did you find out, and has it sunk in yet? >> i found out at 6:30 this morning as i was getting out of the shower. it was hard to believe. it hasn't sunk in. it has been a whirlwind and like a party day for me. >> a lot of nobel prize-winning economists, they are hard to penetrate. you have written books for people who don't have training. and you still teach a freshman class every year. >> not every year. i'm doing it for the first time.
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i thought it would be fun to teach the kiddies. some of them are only 18 or maybe 17. they are teenagers. i aren't been connecting with those people for a long time, and i thought it might be fun to do it. >> robert schiller, cowinner of 2013 nobel prize in economics. you. >> thank you. >> all right. let's make a deal, are lawmakers about to kick the can, raise the debt ceiling, or find a way to pass a federal budget. we'll talk about where we may go from here. (vo) al jazeera america we understand that every news story begins and ends with people. >> the efforts are focused on rescuing stranded residents.
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half a trillion dollars. that's how much money may be whacked from the defense budget over the next decade under forced spending cuts, yes, we're talking about the s word, sequestration. joining us now with this story is john reign who's company makes nylon field gear for the military. sales are down 10% so far this year. john, good to see you. you are a great picture of the
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fact that while we all like the concept of the government spending fewer of our tax dollars, we don't always see what is on the other side, and sometimes what is on the other side is a guy like you? >> oh, absolutely. years. >> so your sales are down 10%, because those are sales sales that otherwise would have gone to the government. >> right. of course. the military over the past -- well, since 2001, and 9/11, the market sectors enjoyed a huge amount of spending in that area, and obviously over the past few years with soldiers coming back from iraq and afghanistan and all over the world it makes sense that you would reduce the spending. so basically we have been seeing this over the last five years, and really as a business owner we have a plan for it and you
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adjust for it, and that's what we have been doing, but it has been falling a little bit faster than what we have been able to keep up, but we have implemented a business plan that will actually expand what we do with the military in the future. >> you have also though, expanded part of your business into selling outside of the military. you are doing something with back braces. tell me about this. >> yeah, a few years ago a friend of mine approached us to manufacture back braces for medical care, and i thought that would be a great way to diversify, and we always need medical care, so we started producing these back braces, and hopefully we'll expand with that -- [ technical difficulties ] -- so it has really helped us this year because of the various cutbacks in the military. >> are you expecting something to change with those forced
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spending custs, the sequester, or are you planning for a business that involves military cutbacks on spending? >> well, you always have to assume the worse and plan for it. that's just what you have to do. our -- as i said, we're diversifying into -- in the past we have always supplied military stores like the military px system and military supply retailers where soldiers go and buy for themselves, now we are -- i have hired -- it took us a while, but we found some outstanding people to help us design gear for special force where the money is, and that is where the sequester has hit us the most this year, a we haven't been able to launch as fast as we would like in that area, because we had units who had a budget for 2013, and right away they went back to budgets of
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2008, so they had to stop buying, so we feel that we will expand in this area. we're expecting really a good year next year -- >> so they may have -- the spending has been rolled back to a point that is actually earlier than what it might end up being. >> yeah, ali what has happened is the overall cuts of the sequester is 2% of the total budget. i think the military was 5%. it was heavily -- they are absorbing a great deal of those cuts. but when you cut something right away, you can't just say let's do half of this airplane. let's do these big projects. so those continued so the media cuts, commander said okay. we're going to stop buying gear or stop -- >> you are the fungible part. all right.
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john thank you so much for sharing this with us. since the housing bubble burst almost 4 million new renters have flooded the real estimate market and that somebody is growing. the real estate research firm says the u.s. apartment vacancy rate fell to the lowest level in almost a decade and rents are going up. who are these 4 million new renters? some are homeowners, but many are millennials or the under 25 crowd. >> this 32-year-old dreams of one day owning a home. >> i think we all dream about buying. the friends that i have that haven't purchased just don't have the savings or the salary to take that plunge. >> she works at the new jersey federal public defend's office, even with the government shutdown she is considered an
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essential employee, but she says her office has been told to prepare for layoffs. >> i just know that it wouldn't be smart to buy right now, and i -- i can't even see the day that it is going to be short. >> she is one of a growing number of millennials in america choosing to rent instead of buy. since the housing crisis minnelals age 18 to 34 showed the steepest decline in ohm honership. this economist says one big reason, student loan debt. >> you have to make monthly payments on your student debt, so that makes it very difficult to take on a second debt load in the form of a mortgage. >> the share of young people getting their first mortgage was cut in half. >> it's harder to get a mortgage today than it was during the housing bubble.
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>> during the housing bubble credit was so loose, interest rates were so low, we created these toxic financial products. >> the average down payment in the 90s was 20%. at the height of the housing boom that average dropped to 4% or less. now the average down payment is around 22%. >> the vast majority of young renters say they want to own some day. >> but for millennials like shawn, for him renting is a life choice. >> i just like the flexibility. >> shawn runs his own concert promotions company in philadelphia. for him buying a house seems like a risky financial decision. >> i see buying a house a risky decision
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at this point in my life. and right now i am invested in four businesses, and i choose to invest in businesses rather than a mortgage. >> should the feds make you pay your attackses on october 15th? the irs is pretty much shutdown, over 90% of government run furlough. people on hand who process tax filing -- [ technical difficulties ] -- government reopens for that. file now, get paid later, and if you have a question and want to call the irs, you are out of luck, those folks are furloughed too. i say the government should pay more fair, don't expect people to fork over tax money, when you
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